20130503Decision Memo.pdf

DECISION MEMORANDUM 1
DECISION MEMORANDUM

TO: COMMISSIONER KJELLANDER
COMMISSIONER REDFORD
COMMISSIONER SMITH
COMMISSION SECRETARY
COMMISSION STAFF
LEGAL

FROM: KRISTINE SASSER, DAG
RICK STERLING

DATE: MAY 2, 2013

RE: IDAHO POWER COMPANY'S MOTION FOR APPROVAL OF SETTLEMENT
AGREEMENT WITH GLENNS FERRY COGENERATION PARTNERS, LTD.,
CASE NO. IPC-E-13-12

On April 25, 2013, Idaho Power filed a Motion for Approval of Settlement Agreement
pursuant to Idaho Code § 61-502, Commission Procedural Rules 56 and 274 requesting an Order
approving the Settlement Agreement and Mutual Release (“Settlement Agreement”) between Idaho
Power and Glenns Ferry Cogeneration Partners, LTD. (“Glenns Ferry”). IDAPA 31.01.01.056 and
.274. Idaho Power amended its Motion on May 2, 2013. Idaho Power requests that the Commission
grant its Motion and approve the Settlement Agreement in its entirety, without material change or
condition, pursuant to Rule 274. IDAPA 31.01.01.274.
BACKGROUND
The Firm Energy Sales Agreement between Idaho Power and Glenns Ferry is dated
December 9, 1992, and provides for a 20-year contract term. See Case No. IPC-E-92-32. The
Agreement was approved by the Commission on January 22, 1993. Order No. 24674. In February
2008, Glenns Ferry lost its sole thermal host and ceased the delivery of energy to Idaho Power.
On October 16, 2008, Idaho Power filed a Petition for Declaratory Order and Complaint for
Breach of Contract (“Petition”) against Glenns Ferry with the Commission. Idaho Power alleged that
the permanent curtailment of energy deliveries amounts to a default of the Firm Energy Sales
Agreement. Idaho Power sought termination of the Agreement. See Case No. IPC-E-08-20. On
October 6, 2011, pursuant to Procedural Rule 68, Idaho Power filed a Notice of Withdrawal of its
DECISION MEMORANDUM 2
Petition. By operation of the rule, the notice was effective as of October 20, 2011, and the case was
closed. See IDAPA 31.01.01.068.
On October 28, 2011, Idaho Power filed a Complaint for Breach of Contract and
Declaratory Judgment (“Complaint”) against Glenns Ferry in the District Court of the Fourth Judicial
District of the State of Idaho alleging a breach of contract and seeking a declaratory judgment
terminating the FESA (“State Court Action”). On November 15, 2011, Glenns Ferry removed the
State Court Action to the United States District Court for the District of Idaho (“Federal Court
Action”).
The complaint alleged, among other things, that Glenns Ferry materially breached the
FESA by losing its thermal host, Idaho Fresh-Pak; failing to maintain its Public Utility Regulatory
Policies Act of 1978 qualifying facility (QF) status; and permanently curtailing its deliveries of annual
net firm energy. The complaint also alleged that in or about April 2008, Idaho Fresh-Pak defaulted on
the Thermal Host Agreement between Glenns Ferry and Idaho Fresh-Pak. The Thermal Host
Agreement provided, among other things, that Idaho Power was a third-party beneficiary to that
agreement and that Idaho Fresh-Pak would be liable to Idaho Power, limited to amounts specified in
the Thermal Host Agreement, in the event Idaho Fresh-Pak defaulted on the Thermal Host Agreement.
On January 22, 2013, Idaho Power, Glenns Ferry, and Idaho Fresh-Pak attended mediation
before the Honorable Mikel H. Williams of the U.S. District Court and settled all claims among them,
subject to the approval of the Commission.
THE SETTLEMENT AGREEMENT
The Settlement Agreement provides for: (1) the termination of the FESA; (2) a Stipulated
Judgment in the amount of $15,000,000 entered in favor of Idaho Power in the Federal Court Action,
to which Idaho Power agrees to enter into a Covenant Not to Execute on the Stipulated Judgment; (3)
provisions prohibiting Glenns Ferry from developing any new facility at the current location until such
time as the Stipulated Judgment is paid in full; (4) payment of $250,000 from Glenns Ferry and
payment of $750,000 from Idaho Fresh-Pak; (5) provisions for securing the above-mentioned payment
amounts; and (6) other provisions such as a mutual release of liability, liability for power bills at the
project site, mutual cooperation, etc.
Idaho Power maintains that the Settlement Agreement avoids additional, costly litigation,
recognizes a judgment in favor of Idaho Power and its customers, and provides for the partial recovery
of damages pursuant to the FESA. Idaho Fresh-Pak has a sale pending for its facility, and the
DECISION MEMORANDUM 3
Settlement Agreement provides that Idaho Power would receive any proceeds from such sale to satisfy
Idaho Fresh-Pak’s $750,000 liability. Although the Settlement Agreement acknowledges a judgment
in favor of Idaho Power in the Federal Court Action in the amount of $15,000,000, the Settlement
Agreement provides for the collection of $1,000,000 of that amount. Through its investigation and
discovery related to this matter, Idaho Power determined that there was not sufficient cash or assets
available from the limited liability, special purpose business organizations representing Glenns Ferry,
the contracting QF, or any party with liability under the contract—essentially making a resulting
judgment in favor of Idaho Power uncollectable. Idaho Power, through the underlying contract and the
limited security provisions allowed by Commission rules and orders, does have a second security
interest in certain assets of the contracting QF. Such assets were determined to have an approximate
value of $1,000,000, which is the amount provided for collection from the responsible parties pursuant
to the Settlement Agreement.
The Settlement Agreement contains a provision stating that all terms and conditions of the
Settlement Agreement are subject to approval by this Commission and that only after such approval,
without material change or modification, has been received shall the Agreement be valid and effective.
Idaho Power believes that the Settlement Agreement is a fair and equitable resolution to this matter,
and in the public interest. Idaho Power respectfully requests that the Commission grant this Motion
and approve the Settlement Agreement in its entirety, without material change or condition, pursuant to
Rule 274, IDAPA 31.01.01.274.
Commission Staff concurs with Idaho Power that recovery of the full $15 million Federal
Court Judgment is highly improbable. Therefore, Staff does not oppose approval of the proposed
Settlement Agreement. Staff also believes this matter can be resolved without further process.
COMMISSION DECISION
Does the Commission wish to grant Idaho Power’s Motion for Approval of the Settlement
Agreement between Idaho Power and Glenns Ferry Cogeneration Partners (in its entirety, without
material change or condition) without further process?

M:IPC-E-13-12_ks_rs